How Sensitive is Newmont’s Valuation To The Changes In The Price of Gold?

by Trefis Team
-2.29%
Downside
39.02
Market
38.13
Trefis
NEM
Newmont Mining
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Gold has had a strong start to 2018 largely as a result of the weakening of the U.S. dollar which makes the precious metal relatively cheaper to its investors. Gold had risen by almost 5% during its peak in January and the market is extremely optimistic regarding the rise in the price of gold throughout 2018. Such a scenario remains extremely beneficial for gold mining companies, such as Newmont Mining (NYSE: NEM),  which had previously suffered from an environment of declining gold prices. We have created an interactive model which highlights the impact of a rise in gold prices on the company’s stock price.

The graph below outlines the implication of a 1% change in the average realized price for gold on the company’s stock price, assuming that shipment volume for the upcoming year stays constant. Per our analysis, we derive that a 1% growth in the company’s average realized price for gold results in a 1% upside to the current market price of the company. Thus, if gold happens to average at $1400 for the full year 2018, it would imply an 11% upside to the current stock level.

The earnings and P/E multiples are based on the consensus estimates from Reuters for 2018 and the model assumes that the forward P/E for the company remains constant.

In case you have alternate assumptions regarding estimated revenue, net income margin, or P/E multiple figures, you can modify the same using our interactive platform to arrive at your own impact on the company’s valuation.

We have a $37 price estimate for Newmont, which is currently 3% below the market price.

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